Most plan sponsors know a SECURE 2.0 amendment is due by the end of 2026. Fewer realize it is also a decision point. One of the optional choices in that amendment is whether to raise your plan’s small-balance force-out limit from $5,000 to $7,000.
It sounds like a small detail. But the choice you document this year shapes what your plan costs, how many former employees you keep tracking, and, for some plans, whether an annual audit is required. Here’s what the limit does, the four paths available to you, and how to decide before the deadline.
What the $7,000 Limit Does
SECURE 2.0 lets plans raise the involuntary cash-out limit to $7,000 for distributions after December 31, 2023. If your plan has a force-out provision, here’s what happens to a former employee who doesn’t move their money on their own after being notified:
The $7,000 figure is fixed. It isn’t indexed for inflation, so it won’t creep up on its own.
Your Four Options
Every plan sponsor falls into one of these paths. Find yours, then follow the action steps before December 31.
Reasons to Adopt the $7,000 Limit
- More inactive accounts qualify. Every former employee with an account balance between $5,000 and $7,000 becomes newly eligible to roll off your plan.
- Lower plan costs. Recordkeepers often price by participant count or average balance. Fewer small accounts can mean lower per-participant fees and a better active-to-inactive ratio when you negotiate with your recordkeeper.
- Fewer missing participants. Every former employee you keep is one you have to keep tracking down, with returned mail, outdated addresses, and fiduciary risk.
- Lower participant counts. Audit requirements are based on participants with account balances. For plans near 100 participants, rolling off small balances can affect whether an annual audit is required.
Reasons to Think It Through
- Notices and process. Force-outs need proper participant notices, including the required §402(f) rollover notice, and address verification, every time. If you aren’t using a provider like Todays Pension that handles this for you, providing proper notice can be a time-consuming process.
- Provider selection. Choosing a Safe Harbor IRA provider is a fiduciary decision that should be documented.
- Your workforce. Some sponsors prefer to keep former employees on the plan regardless of their balance, where institutional pricing may be better than in an individual IRA.
What It Could Mean for Your Plan
Consider an illustrative plan with 10,000 participants, 2,500 of whom are former employees with balances under $7,000. Those 2,500 accounts hold only a small share of the plan’s assets, but each one adds to the plan’s per-participant costs.
Your Pre-Deadline Checklist
- Pull your current plan document. Check whether it includes a force-out provision and which limit it uses.
- Compare it to what you actually do. Look at your recent force-outs and confirm the limit and dates line up.
- Count your eligible accounts. Find out how many former employees fall under $1,000, between $1,000 and $5,000, and between $5,000 and $7,000.
- Choose your option. Decide among Options A through D above and record the decision.
- Review the amendment before you sign. Go through it with your TPA or ERISA counsel rather than signing the package as-is.
How Todays Pension Helps
Deciding to roll off small balances is the easy part. Running the process well, every time, is where most sponsors get stuck. Our Auto-Rollover service manages it end to end:
- Eligibility analysis: we review your participant data to identify every former employee who qualifies.
- Location verification: we confirm current addresses before anything is sent.
- Required notices: we deliver the required §402(f) notices to each participant.
- Account transfers: we facilitate rollovers into Safe Harbor IRAs at a partner custodian.
- Ongoing scanning: an optional subscription keeps reviewing your plan so newly eligible participants are processed on a recurring basis.
The Bottom Line
For most plans with a meaningful number of former employees, the $7,000 limit is worth adopting. Whatever you decide, the amendment has to describe what your plan actually does, so make the choice deliberately and document it before December 31, 2026.